IMF urges Japan to go ahead with planned tax hike next year

TOKYO (Reuters) - Japan should go ahead with a second sales tax hike next year in order to maintain credibility of its fiscal framework, an International Monetary Fund official said on Thursday.

"Going ahead with the tax (hike) is very important," said Roberto Guimaraes-Filho, deputy division chief of the Regional Studies Division at the IMF's Asia Pacific Department.

Speaking at a seminar, the official said the IMF expects Japan's economy to grow by an annualised 3.4 per cent in July-September, rebounding from the deepest slump since the 2009 global financial crisis in the previous quarter after April's tax hike.

Japan's national sales tax rose to 8 per cent from 5 per cent in April and the government is due to decide by year-end whether to proceed with a second tax increase to 10 per cent next year.

The comments from the IMF official come amid growing concerns in Japan over whether the world's third-largest economy can withstand the blow from a further tax hike.

The IMF forecast Japan's growth at 0.9 per cent this year, which is above its estimated potential. The official said while the economic outlook is solid in the near-term, Japan should rebuild fiscal buffers to counter negative shocks in the future.

"It's really about having a fiscal framework that is credible so that down the road if you have shocks, you can use fiscal policy instrument in a sort of credible fashion to cushion a blow from any adverse shock," he said.

The official also stressed the need for the Bank of Japan to continue with its current easing stance to meet its price goal.

Many private economists are sceptical that the BOJ will meet its inflation target and see it easing policy further.